Did finance companies perform well enough in the first quarter? Did ICFC Finance take a lead even in this quarter?

Highlights:

-ICFC Finance Company leads in four major indicators

-Three national level finance companies in loss

-Loans worth Rs 54 arba disbursed by the overall industry

-Deposits worth Rs 63 arba collected by the overall industry

The outreach of banking and financial services in Nepal is still lagging behind. Majority of the population are still restrained from the access of these services. Finance companies are therefore licensed by the central bank with an objective to provide different banking and financial services to the general public. Often, finance companies are not preferred by mutual funds during in their investment portfolio. Experts also hold a viewpoint that the business model of finance companies are not clear since we have never heard a finance company being upgraded into development banks or degraded into microfinance company.  The consistent merger among finance companies or acquisition by commercial and development banks have also brought fluctuation in the number of these companies. However, Nepal Rastra Bank has realized the essence of finance companies in Nepal. As a result, NEPSE currently has 20 listed finance companies so far. If problematic institutions such as Nepal Finance, Nepal Share Markets and Finance Limited, Capital Merchant Banking and Finance, Crystal Finance will come into operation, the number will increase.

The green box denotes national level finance companies while the blue box indicates finance companies operating in 1 to 3 districts. Thus, to facilitate the enthusiasts in the secondary market, the article has been prepared accumulating the analysis of all the finance companies with respect to their performance in 1st quarter of fiscal year 2075/76 that can be useful for investment purpose. The industry average includes all the 20 finance companies. However, the performance of three companies (operating in 1 to 3 districts) has not been compared with the industry average.

Financial overview:

Paid up capital:

Among the national level finance companies, ICFC Finance Company (ICFC) has the highest paid up capital (Rs 88.22 crores), followed by Gurkhas Finance Limited (GUFL) (Rs 86.80 crore). Central Finance Limited (CFCL) is third position with capital Rs 82.34 crores.

Among the finance companies operating in 1 to 3 districts, Janaki Finance Limited (JFL) has the highest paid up capital of Rs 49.21 crores. It is further followed by Srijana Finance Company (SFFIL) with a paid up 40.07 crores. Finally, Multipurpose Finance Company (MPFL) has capital worth Rs 4.15 crore.

The national level finance companies are required to meet the paid up capital of Rs 80 crores while the finance companies operating in 1 to 3 districts are required to meet the paid up capital of Rs 40 crores. The problematic finance companies which have started their operation will have to meet the paid-up capital requirement by mid-July 2019. Those are HATH, CEFL, LFC, WMBF among the 20 companies mentioned above in the table. There are other problematic companies as well but are yet to come into operation.

Find the descending of both national level (green colored) and 1 to 3 districts level (blue colored) finance companies in terms of paid up capital:

Reserve and surplus:

In context of reserves and surplus, Pokhara Finance Limited (PFL) has highest reserve of Rs 37.98 crores, followed by Gurkhas Finance Limited (GUFL) with a reserve of Rs 29.93 crores. In the third place stands United Finance Limited (UFL) with reserve worth Rs 26.57 crores. The industry average reserve is around Rs 9.47 crores and 9 companies are above the average.

Among finance companies, having their presence in 1 to 3 districts, Srijana Finance (SFFIL) has a reserve worth Rs 20.43 crores,  Janaki Finance Limited (JFL)  with reserve of Rs 17.93 crores and Multipurpose Finance Company (MPFL) with a reserve of Rs 2.60 crores.

Find the descending of both national level (green colored) and 1 to 3 districts level (blue colored) finance companies in terms of reserves and surplus:

 Net profit:

Among the finance companies, the first quarter report shows that ICFC Finance (ICFC) has earned the highest net profit of Rs 4.13 crores. It is further followed by Shree Investment Finance Limited (SIFC) with net profit of Rs 2.52 crores. Pokhara Finance Limited (PFL) is in the third position with net profit of Rs 1.89 crores. The industry average net profit of finance companies stands at Rs 0.75 crores with 8 companies above industry average.

Among the 1 to 3 districts finance companies, Janaki Finance Limited (JFL) has a net profit of Rs 86 lakhs.  Srijana Finance Company (SFFIL) has a net profit of Rs 47 lakhs and Multipurpose Finance Company with a net profit of 6 lakhs.

Find the descending order of both national level (green colored) and 1 to 3 districts level (blue colored) finance companies in terms of net profit:

 Deposit collection:

The national level finance companies have been trying their best to attract the deposit clients. As of the first quarter of FY 2075/76, ICFC Finance (ICFC) has established itself in the top list in deposit collection. It has a deposit worth Rs 8.52 arba. Similarly, the company is followed by Manjushree Finance Limited (MFIL) and Gurkhas Finance (GUFL) with the collected deposit of Rs 6.34 arba and Rs 5.80 arba respectively. The industry average of deposit lies at Rs 3.15 arba with 10 companies standing above the par.

Among the finance company operating in 1 to 3 districts, Srijana Finance (SFFIL) has a deposit of Rs 5.80arba, Janaki Finance (JFL) has deposits of Rs 1.73 arba and Multipurpose Finance (MPFL) has deposits of Rs 21.10 crores.

The total deposit collected is Rs 63.14 arba.

Find the descending of both national level (green colored) and 1 to 3 districts level (blue colored) finance companies in terms of deposit collection:

Loans and advances:

As shown by the figures, the positions in loans and advances are almost similar to deposit. The top three positions are occupied by ICFC Finance (ICFC), Manjushree Finance Limited (MFIL) and United Finance Limited (UFL) with credit disbursement worth Rs 7.02 arba, 5.46 arba and Rs 5.10 arba. The industry average stands at Rs 2.74 arba with 9 companies that have disbursed credit above the industry average.

The total credit disbursed is Rs 54.87 arba.

Find the descending of both national level (green colored) and 1 to 3 districts level (blue colored) finance companies in terms of loans and advances:

 Annualized EPS

With an industry average of Rs 4.77 in terms of EPS, ten finance companies have been able to deliver an EPS that is above industry average.

The finance company that has won the race of annualized EPS is Progressive Finance Company (PROFL). The company’s annualized EPS stands at Rs 33.95. ICFC Finance Limited (ICFC) has the second highest EPS that accounts to Rs 18.74. Finally, Shree Investment Finance Company Limited (SIFC) has an EPS of Rs 12.61 per share.

Among the finance companies operating in 1 to 3 districts, Janaki Finance has the highest EPS of Rs 6.99 followed by Multipurpose Finance Company (MPFL) with an EPS of Rs 5.73. In the third position, we have Srijana Finance (SFFIL) with an EPS of Rs 4.69.

Find the descending of both national level (green colored) and 1 to 3 districts level (blue colored) finance companies in terms of EPS:

 Net worth:

The industry net worth average is Rs 110.26 among the finance companies. 10 companies have net worth above average. Analyzing the net worth per share, Pokhara Finance Limited (PFL) has the highest net worth of Rs 146.52 followed by Gurkhas Finance Limited (GUFL) with net worth Rs 134.48. In the third place, we have United Finance Limited (UFL) with net worth per share of Rs 133.19.

Among finance companies operating in 1 to 3 districts, Multipurpose Finance Limited (MPFL) has a net worth of Rs 162.69, Srijana Finance (SFFIL) has a net worth of Rs 150.99 and Janaki Finance Limited (JFL) has the net worth per share of Rs 136.43.

Find the descending of both national level (green colored) and 1 to 3 districts level (blue colored) finance companies in terms of net worth:

P/E Ratio:

As per the general rule of thumb in finance, lower the P/E ratio, better the company. Considering it, the finance companies with the least P/E ratio are Reliance Finance Limited (RLFL) with P/E ratio of -14.68 times. City Express (CEFL) with P/E ratio of -7.74 times and Lalitpur Finance Company (LFC) with P/E ratio of -7.65 times.  (Please note that all three companies have loss in first quarter.)

Janaki Finance (JFL) has a P/E ratio of 23.61 times, Multipurpose Finance (MPFL) has a P/E ratio of 28.99 times and Shrijana Finance (SFFIL) has a P/E ratio of 57.77 times.

Find the descending of both national level (green colored) and 1 to 3 districts level (blue colored) finance companies in terms of P/E ratio:

Market price:

The market price of these companies as of 20^th November, 2018 has been accumulated in the following table:

In a nutshell:

The full picture of finance companies is given in the following table:

Given the study on these finance companies, what strengths and opportunities do you think they have in the highly dominated banking industry? Which finance company would you prefer investing in? Please write in the comment section below.

Disclaimer: The sources of provided information are quarterly reports, website and spokesperson. Any misinterpretation from the sources might be not adjusted in the analysis.